Borrowing money may seem like a scary exercise involving business plans and all sorts of financial statements. Here’s what you need to know before taking on a small business loan.
Polish Your Business Plan
Have a clear but concise business plan setting out what your business does, how it makes money, the risks it faces and how you will mitigate them. Outline your plan for growth in stages and the funding you will need along the way. If you wrote the business plan a while ago, make sure it is up to date and has all the information your investor or lender will need to make their decision as easy as possible.
Gather the Proof You Have Happy Customers and More on the Way
Detail who you already serve, the prospects you plan to approach as part of your growth plan and the targets you hope to hit. This will help reinforce the fact that you are a functioning business with the potential to make more money and can, in fact, repay your loan.
Include a Cash Flow Report and Forecast
The key elements of your financial reporting that banks or financial institutions will want to see are documents ensuring your financial management to date has been sound. In your presentation include all your costs and sources of income, your balance sheet and cash flow forecasts to help reassure lenders you have a plan to manage the loan you are asking for.
Demonstrate Your Expertize
Lenders want reassurance that they are not lending money to wide-eyed amateurs. A succinct account of your industry experience and knowledge is worth writing, along with summaries of the research you have done into the marketplace and the size of the opportunity. This is especially the case if you run a fledgling business with a short or non-existent track record.
Lay Out Your Borrowing Track Record
Provide a brief summary with supporting accounts and references to show you have a good record of sensible financial statements and borrowing.
Show the Lender Why You Need the Money and When You Will Repay It
Provide a detailed breakdown of what you need the money for and when you will need it. It helps if you can clearly lay out the amount you want to borrow, the repayment schedule and contingency plans. If you are looking for funding from venture capitalists rather than a bank you also need to show that the equity they invest in your business will provide a strong return.
Draw Up Your Long-term Plan for the Business
This will show you are thinking strategically about the business, will interest lenders who may see a chance to do more business with you in future and, if you are planning an exit, will reassure venture capital backers they will get their money back through a future sale of the business. It also helps if you can proactively answer questions before your lender has a chance to ask them.